Tuesday, February 14, 2012

What is Wealth, Anyway?

 What does the concept of wealth mean to you?

What does wealth mean to you?
  1. A million dollars.
  2. A lot of neat stuff, like a fancy house and car and jet ski.
  3. Having lots of electronic toys and services like cable and cell phones.
  4. Not having to work for a living.
The correct answer was #4.

Why are the others wrong?  Let's examine each one, individually:
1.  A Million Dollars.  Being a millionaire ain't what it used to be.  In 1920, it meant you were rich.  Today, it only means that someday, you may be able to afford to retire - on about $40,000 a year, using the 4% rule of retirement.  That ain't a lot of money, is it?

Having a defined chunk of money isn't wealth, as once that money is spent, well, you are back where you started.  And for many folks, who get big chunks of money, it all gets spent in short order - like those lottery winners who are bankrupt in 5 years.  Are they wealthy?  Were they ever?  

No, money, by itself, is not wealth.  Particularly when you spend it.

2.  A Lot of Neat Stuff:  Owning things is anti-wealth, actually.   You may have a fancy car, a fancy house, and a fancy boat, but they don't represent wealth or even the appearance of it.  They just represent spending or dissipation of wealth.

The car and boat depreciate, and if you borrowed money to buy them, they represent a huge dent in your real wealth.    And the fancy house?  Just a money pit of property taxes, insurance, repairs, etc.  It is not real wealth, just something you are chained to.

No, "stuff" is not wealth, either.

3. Services:  Having every channel of cable TV and a new iPhone is not wealth, either.  Eating out in fancy restaurants every night just makes you fat.  Again, it is just spending money, not making it.  And the same goes for having a lawn service or a maid or whatever.  Spending is not wealth, not even the appearance of it.

Services are not wealth, either.

4.  Not Having to Work:  If you don't need to go to a job to make money, you are wealthy, regardless of the money you have in the bank or how much crap you have (or don't have) parked in your driveway.  Why?  Because you own yourself.

And not having to work has less to do with how much money you have in the bank and more to do with the crap parked (or not parked) in your driveway.  A lot of Americans can afford to retire at age 40, but few choose to do so.  Instead, they chase the appearance of wealth through the purchase of cars and junk and services, to the point where their monthly operating costs are equal to their income.   They have to work for a living just to pay off all their debts.

They are not wealthy.  They are not even free.  They are slaves to their lender-masters and their employers.
Every time you buy a brand-new car, you add another year to your work life.  A typical car costs $25,000, brand new, and when you buy one (and pay all that insurance) you are spending more money that, over time, compounded with interest) would easily allow you to retire a year earlier.

Think about that the next time you are tempted to buy a new car.  "Gee, should I get this new Malibu, or retire a year earlier?"  Maybe the old jalopy parked in your driveway will start to look more attractive.

Not having to work opens up your life to real creativity and growth.   You can do what you want to, when you want to.  You can write that Great American Novel.   You can run for political office, like Mitt Romney can afford to do.  You can live your life as something else than a series of weekends that flash by.

But few chose to do this.  They rack up debt, they increase their cost of living and they work harder and harder and never can really afford to retire.  And when they do, it is not pretty.

I am not wealthy, in terms of money in the bank, cars parked in the driveway, or services to my home. Chances are, you make a lot more money than me, you have a fancier car (mine is a 1999) and you have a smart phone and cable TV, a maid that comes once a week and a lawn guy.  I have none of those things.  So I must be poor, right?

But I can afford to goof off all day long and write this blog.  Or spend the day at the beach.

I don't have to get up in the morning and commute to work or suck up to a boss.  And not because I have money, but because I don't have any need to spend any.

You may laugh at my 10-cent-a-minute cell phone.  But your smart phone just rang and it was your boss, wondering why you aren't at that meeting.  Who's laughing now?

Who is wealthier?  Really?  

Owning yourself is the ultimate luxury, and let me tell you, it feels like mink!